Direct Materials (0.2 Ibs. e $0.25 per lb.) Direct Labor (3 minutes e 50.11 per minute) Manufacturing Overhead: Variable (3 minutes e $0.06 per minute) Fixed (3 minutes e $0.13 per minute) $0.05 0.33 $0.18 0.39 0.57 Total Cost per Coffee Mug $0.95
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Computing and journalizing standard cost variances
Moss manufactures coffee mugs that it sells to other companies for customizing with their own logos. Moss prepares flexible budgets and uses a standard cost system to control
Actual cost and production information for July 2018 follows:
a. There were no beginning or ending inventory balances. All expenditures were on account.
b. Actual production and sales were 62,500 coffee mugs.
c. Actual direct materials usage was 11,000 lbs, at an actual cost of $0.17 per lb.
d. Actual direct labor usage was 197,000 minutes at a total cost of $25,610.
e. Actual
f. Selling and administrative costs were $95,000.
Requirements
- Compute the cost and efficiency variances for direct materials and direct labor.
- Journalize the purchase and usage of direct materials and the assignment of direct labor, including the related variances.
- For manufacturing overhead, compute the variable overhead cost and efficiency variances and the fixed overhead cost and volume variances.
- Journalize the actual manufacturing overhead and the allocated manufacturing overhead. Journalize the movement of all production costs from Work-in-Process Inventory. Journalize the adjusting of the Manufacturing Overhead account.
- Moss intentionally hired more highly skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?
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